Affordable housing may be a pipe dream if we don’t fix the Steel Sector

By Ketan Doshi,

The Affordable Housing and Manufacturing Pillars of the Big 4 Agenda are very central to realizing a high quality of life and reducing poverty for all citizens. They are also critical because in achieving these two, we would have made significant strides in narrowing the inequality gap and raising the productivity of Kenyans, especially the youth. With the right policies in these two sectors, it is very possible to attain the above in the short term.

This is why it is important to develop policies with the bigger picture and end goal in mind, especially those that affect the crucial elements of bringing the Big 4 Agenda to fruition. One of these elements is Steel. The Steel sector is a central component in both housing and manufacturing, not only is it a notable employer in the country but also significantly contributes to the country’s revenue in terms of GDP.

The health of the Steel sector in any country is used as a paradigm to gauge the overall economic status because it is an indicator of the amount of investments dedicated to infrastructure and subsequently, an indicator of developmental progress and stability. The raw material that is used to produce steel is not found within our borders, and therefore has to be imported from various destinations. For years this has been the case, and the government has always made it possible for steel producers to access raw materials hence the growth of that sector.

Recently, the port of Mombasa has had a myriad of challenges that have affected the movement of goods in and out of the country, and increased the cost of doing business due to storage and demurrage charges. For instance, it now costs a minimum of USD8.00 per ton for Steel raw material and in shore handling charges. Additionally, the steel Industry has paid Millions of shillings in storage charges due to delays at the port. Adding to this, there are other costs for example transport, Railway Development Levy and Import Declaration Fees, which make the entire process of manufacturing steel very high.

Moreover, the regulation to reclassify these raw materials with the same duty rate as finished products, thereby attracting more duty, has caused a slow-down in the importation and in some cases, authorities have made the decision to disallow entry of future raw materials. These challenges have led to a general investor frustration thereby diluting the goals to increase investments in manufacturing and local content contribution to the affordable housing agenda.

Regionally, Kenya’s competitiveness in this sector continues to decrease. The country was once a leading provider of steel to neighboring countries, but in recent years this has changed. Due to reclassification and increasing taxation on raw materials in the country, exports to the region have become untenable and many investors are beginning to cut back on their export business. It is estimated that we are about 12% more uncompetitive than our EAC partners in terms of trade. This is an alarming trend that we need to reverse if we are to improve our economic status and retain our position as a top investment-attractive destination in East Africa.

We are not just talking of the Steel sector alone but also other sectors in the value chain that depend on its competitiveness to thrive. These include Transport, Construction, Real estate, Fabricator as well as a large cross-section of businesses in the services sector.

Our policies and regulations should look to support our capacity to strengthen historically critical sectors to the economy such as the Steel sector, without which many of our developmental ambitions will be unsuccessful.

The writer is the KAM Steel Sub-Sector Leader and can be reached on info@kam.co.ke.